Dimon vs Vickers

By Felix Salmon

September 12, 2011

Jamie Dimon would give an interview to London's very own Financial Times, complaining that international bank-regulation standards are “anti-American,” on the very day that the Vickers Report -- Robert Peston calls it "the most radical reform of British banks in a generation, and possibly ever" -- is released. "
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It’s beyond ironic — closer to moronic, really — that Jamie Dimon would give an interview to London’s very own Financial Times, complaining that international bank-regulation standards are “anti-American,” on the very day that the Vickers Report — Robert Peston calls it “the most radical reform of British banks in a generation, and possibly ever” — is released.

It’s literally unthinkable that the US Treasury would ever dream of doing to JP Morgan what the UK Treasury, here, seems to want to do to the likes of Barclays and RBS. This is a Volcker Rule on steroids — all retail banking will be ring-fenced and forced to operate with enormous amounts of capital, much more than Dimon is complaining about. It’s essentially a break-up, in all but name, of the big banks with both retail arms and investment-banking operations. And it’s designed, quite explicitly, to strengthen the UK’s banking system by reducing the amount of risk and bolstering financial stability.

But Dimon doesn’t care about what’s going on in the UK. He’s just looking at Basel, which — incredibly — he wants the US to withdraw from.

“I’m very close to thinking the United States shouldn’t be in Basel any more. I would not have agreed to rules that are blatantly anti-American,” he said. “Our regulators should go there and say: ‘If it’s not in the interests of the United States, we’re not doing it’.”

I have no idea what Dimon thinks is anti-American about the Basel standards, which are certainly in the interests of the United States. In fact, by all accounts it was the US which was pushing for stricter rules, and had to compromise with the laxer Europeans, whose banks are much less well capitalized right now.

US banks, including JP Morgan with its “fortress balance sheet”, are very well placed to navigate through the Basel rules and come out strong and dominant on the other side. European banks, by contrast, will have to raise a lot of very expensive equity. And UK banks, if the Vickers proposals are adopted, will be much less formidable in the international arena than they are right now, with most of their assets ring-fenced and unavailable for merchant-banking misadventures.

And in any case, as we learned during the financial crisis, the world is so interconnected that whatever is good for the global banking system is good for the US banking system. Which point seems to be lost on Dimon:

“I think any American president, secretary of Treasury, regulator or other leader would want strong, healthy global financial firms and not think that somehow we should give up that position in the world and that would be good for your country,” said Mr Dimon.

This makes no sense. The more capital America’s banks have, the stronger and healthier they are, surely. Why would enhanced capital-adequacy standards mean giving up a position of having healthy banks? It would mean quite the opposite, it seems to me.

But I suspect that what Dimon is talking about here isn’t healthy banks, but rather healthy bank shareholders. He wants to go back to the casino model, with himself sitting in the role of the house which always wins. (Except when it loses, and is bailed out by the government.) The American president, secretary of Treasury, regulator or other leaders have no particular interest in seeing bank shareholders and employees make lots of money — that’s not what healthy banking is about. The best banks, indeed, are the invisible middlemen who make very little money.

Vickers understands that, as do the regulators at the Federal Reserve who helped to negotiate the Basel agreement. And in his heart of heart, Dimon probably does too. Not that he’d ever admit it.